When you hire employees, you take on a lot of responsibilities—onboarding, training, and running payroll. It may sound like a lot, but hey, that’s the cost of doing business.
The bigger the business, the more tax tasks, or so says the federal government. In particular, if your business grows to 50+ employees, you’ll need to provide health insurance to your team. And to prove to the federal government you did, you’ll need to distribute and file IRS Form 1095-C as part of your tax filing process each year.
But what, exactly, is the 1095-C? And when is it due? We’ll cover all that and more, so keep reading!
What Is Form 1095-C?
Form 1095-C summarizes the health insurance you offered an employee during the prior year. You file a separate 1095-C for every employee that got health coverage through your company.
The IRS uses the form to verify you’ve complied with the employer mandate of the Affordable Care Act (ACA), which says that Applicable Large Employers (ALEs) must offer health care to their employees. An ALE is defined as an employer with more than 50 full-time employees.
Besides sending forms 1095-C to the IRS, you have to provide, or furnish, copies to your employees too. Your employees use this information on their personal income tax returns to confirm they have followed the individual mandate of the ACA, which says individuals must have health insurance. Although employees use 1095-C to fill out their income tax returns, health insurance isn’t considered income.
Who Has To File Form 1095-C?
The ACA requirement for employers is also known as the employer mandate, but it doesn’t apply to everyone. If the mandate applies to you, you must file Form 1095-C with the IRS each calendar year that you offer a health insurance plan, including 2022.
The mandate says that you must provide health insurance to at least 95% of your full-time employees if you fall into one of these two categories:
Businesses with 50 or More Full-Time Employees
If you have 50 or more full-time employees, you’re required to provide health insurance to at least 95% of your full-time staff.
The ACA defines a full-time employee as an employee who works for 30 or more hours per week or 130 hours per month. Here are two examples of full-time employees:
- Lisa, an office worker who works 40 hours per week, Monday through Friday
- Adam, a nurse who works a 12-hour schedule for 12 days of the month, bringing his monthly hours to 144
Businesses with 50 or More Full-Time and Full-Time Equivalent Employees
If you have a bunch of part-time employees, they might equal full-time equivalents if you add up all their hours. If that’s true, you’ll need to offer health insurance to at least 95% of your full-time employees only.
You are not required to give part-time employees a health insurance option. However, you may choose to include health insurance as a benefit for part-timers to get that competitive edge with hiring.
To calculate full-time equivalent (FTE), you take a part-time employee’s weekly hours and divide them by the number of hours in a full-time workweek.
For instance, let’s say Lisa from the previous example only worked 20 hours per week. To calculate her FTE, you would divide her actual hours (20) by the number of hours in a full-time schedule (30) and get 0.66. So Lisa would count as 0.66 of a full-time employee for ACA purposes.
So how does one get to the full-time equivalent of 50 employees? Here’s an example:
Suppose you have 100 total employees who work part-time at 20 hours per week. That’s 100 part-time employees multiplied by the 0.66 full-time equivalent rate, which gives you the full-time equivalent of 66 employees. In this case, you would qualify as an applicable large employer, which means you’re required to offer health care to 95% or more of your full-time employees.
Even though you use part-time workers to calculate whether or not the employer mandate applies to you, you are not required to provide them with health insurance.
When Are 1095-Cs Due to Employees in 2022?
You needed to provide employees with a copy of their 1095-C by the furnishing deadline of March 2, 2022. Forms 1095-C were due to the IRS by Feb. 28, 2022, if using paper filing form, or by March 31, 2022, if using electronic filing.
The IRS can fine you $280 per form if you file after the due date or file incorrect information.
Changes to the ACA Reporting Deadlines in 2021
The IRS made several changes to Form 1095-C’s guidelines, especially the filing deadlines. In particular, it included an automatic 30-day extension for furnishing forms 1095-C to employees, which moved the deadline from Jan. 31 to March 2.
Also, the latest instructions require you to mail the copies to full-time employees unless they’ve opted to receive an electronic 1095-C.
Additional ACA Changes in 2021
Besides moving the ACA filing deadline, changes in last year’s ACA instructions give you the option to offer 1095-C forms by request. You can only do this for part-time employees or non-employees enrolled in a self-insured plan.
A self-insured plan is one where the employer pays for all out-of-pocket claims instead of paying a fixed premium to the insurance provider every month, as in a fully-insured plan. Do note that under a self-insured plan, it’s almost impossible to predict your health insurance costs, so it’s not recommended for small businesses.
If you choose to make 1095-C forms available on request to part-timers and non-employees in self-insured plans, you need to follow these three rules:
- You have to provide clear notice on your website in a place that employees can access, telling them they can request a form online.
- The notice must stay in the same place on your website through Oct. 17, 2022.
- You have to provide the 1095-C form to anyone who requests it within 30 days.
The IRS also removed the good-faith relief, which reduced the penalty for filing incorrect information down to $50 if the mistake was corrected quickly, known as the good-faith effort. So it’s more important now to keep accurate records and double-check your 1095-C information. All incorrect forms are now subject to the $280 penalty per form.
Who Should Get Form 1095-C?
The employer mandate of the ACA states that large businesses who are required to offer a health insurance option must also send Form 1095-C to the following groups:
- Every full-time employee who enrolls in your health plan.
- Every full-time employee, even if they don’t enroll (usually, if they don’t enroll in your plan, they have coverage through a parent or spouse).
- Any part-time employees who enroll in your health plan.
You do not need to send Form 1095-C to part-time employees that had the option to enroll in the health insurance plan but declined.
How Employees Use Form 1095-C
Besides the employer mandate, the ACA has an individual mandate that requires everyone to have health care. It also created a federal tax credit (known as the Premium Tax Credit) for people with lower incomes.
Individual taxpayers use information from their 1095-C tax form as proof of health insurance coverage or proof of eligibility for the Premium Tax Credit when filing their personal income tax return.
Information on Form 1095-C does not report any income. Instead, it tells the IRS which month an employee was eligible for coverage and what was the cheapest premium option available based on the plan and insurance provider you chose.
1095-C vs.1095-A and 1095-B
People who qualify for the Premium Tax Credit and buy coverage through the Health Insurance Marketplace will receive a 1095-A. Those with a minimum essential coverage health insurance plan, such as Medicare, receive Form 1095-B.
Sections of Form 1095-C
Form 1095-C has three sections that must be filled out correctly before filing with the IRS and sending copies to employees.
Part I — Employee and Employer Information
Part I is where you enter employee and employer information. For each employee, you’ll need their name, Social Security number, and address. The employer information includes your name (or business name), employee identification number (EIN), address, and phone number.
Part II — Employee Offer and Coverage
Part II provides details about your employee’s eligibility and the coverage you offered. Before going into the monthly premium information, you need to enter the employee’s age as of Jan. 1 of the tax year you’re filing for and the month the employee started coverage.
Line 14 tells the IRS if an individual was offered coverage, what type they were offered, and for which months. It uses the terms Minimum Essential Coverage (MEC) and Minimum Value (MV), which are defined as:
Minimum Essential Coverage: You offer minimum essential coverage if you provide a health care plan that covers the 10 essential health benefits, including doctor visits, emergency care, and prescription drugs. Health insurance provided by employers, state-sponsored affordable health care plans, and Medicaid all qualify as MEC. In contrast, a dental or vision plan does not qualify as MEC.
Minimum Value: This term means that the plan you offer provides adequate coverage according to the ACA. For the insurance plan to qualify as MV, your employer-sponsored plan must cover at least 60% of the total allowed costs expected to be incurred. For reference, minimum value plans are comparable to bronze plans in the Marketplace.
To fill out line 14, choose the appropriate code from Code Series 1. The codes tell the IRS the following about your health insurance offer:
- If you offered coverage
- If your offer qualifies as minimum essential coverage
- If you offered minimum value
- If you offered coverage to the spouse, children and/or dependents
- If coverage for the employee’s spouse was conditional—For example, you can offer coverage to an employee’s spouse if, and only if, the spouse doesn’t qualify for Medicare or have access to another health care plan from their employer.
- Whether or not your offer is considered affordable under the ACA guidelines. Your offer qualifies for affordability if the cost of the offer is less than or equal to 9.5% of the federal poverty line for single tax filers, which is $13,590 annually for 2022.
Line 15 reports how much it would cost for an individual employee to purchase the cheapest coverage option with coverage only for themselves. In other words, do not include the cost of covering additional family members in line 15, even if the employee added them to the plan.
In line 16, reference Code Series 2 to report any special circumstances that occurred for any of the months, such as:
- Your employee was not employed or was not employed full-time
- Your employee enrolled in the minimum essential coverage option
Part III — Covered Individuals
Provide information for all individuals covered by the plan, including name, Social Security number, and date of birth (optional), and check the box for each month your employer-sponsored health plan covered the individual.
Keeping Track of 1095-C Requirements
When you hire employees and grow your business, you’ll need to know all about the ACA employer mandate and when it applies to you.
If you have 50+ employees, you’ll have to provide health insurance to your full-time employees and keep track of which employees enroll in your plan. That way, you can meet the ACA reporting requirements and send in your 1095-C forms before the filing deadline.
Even if you’re a small business and the ACA doesn’t require that you offer health insurance, it’s worth considering an offer of coverage. Providing employees with health care plans can make them feel more valued and increase retention and performance.
It might require a bit more tax work, but ultimately it helps to think through your employee benefits strategy.